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Five key questions about an insurance exchange

Imagine a Web site that allows consumers to compare health insurance plans and select one that best suits their needs. That just may become a reality if lawmakers include an insurance exchange as part of the larger healthcare reform package. There are several different insurance exchange proposals in Washington, and they vary in a number of areas.

Supporters of the various insurance exchange programs agree that the program would provide one-stop shopping for individuals to compare available plans. The program would also allow for portability so a person wouldn’t lose health insurance because of job loss. After those two highlights, however, there is a lot of disagreement as to the actual makeup of the exchange.

Here are five tough questions lawmakers will have to answer if the insurance exchange remains part of a larger health reform package.

1. Does it include a public plan?

The most hotly contested healthcare reform topic in Washington has been a public insurance plan. Supporters say a public option is one key way to reduce health costs because private insurers would need to cut costs to compete against a public plan with lower overhead.

However, public plan foes say the government should not create a public plan that would pay doctors and hospitals less and potentially hurt private insurers. They argue that a public plan, paying at rates similar to Medicare, would actually cause doctors and hospitals to transfer more costs onto private insurers.

Robert E. Moffit, PhD, director of the Center for Health Policy Studies at The Heritage Foundation, wrote The Rationale for a Statewide Health Insurance Exchange in 2006 after about 15 state legislatures introduced statewide health insurance exchanges. Moffit supports an exchange that would make health insurance portable by having employers pay tax-free contributions to the exchange for their employees’ healthcare.

He says creating a health insurance exchange to work in concert with a public insurance plan, on the other hand, will mean the end of private insurance.

“In my view, we’re talking about something that looks like the Roman Coliseum, where all the private plans are the Christians and the public plan is the lion,” Moffit says. “So the national health insurance exchange becomes a giant killing field for private health insurance, which is what I think they want to do.”

2. Is it a federal or a state program?

An insurance exchange could be a federal program or a state-run program that would launch with federal seed money. Most experts agree that the exchange would need to be run at the state level because there are so many variations in mandates, laws, and insurers by state that a national exchange would be impossible.

Janet Trautwein, executive vice president and CEO of the National Association of Health Underwriters, says most of the insurance exchange proposals would create an exchange that would not preempt state law. Another option is to let individuals choose between policies with state-mandated policies and ones without those mandates.

Trautwein says lawmakers must make sure that insurers are treated the same whether outside or inside an exchange, such as offering the same subsidies to each. A level playing field is needed or people could flee their employer-based plans to take advantage of subsidies in the exchange.

“It is very important if we have an exchange that the rules be the same whether people purchase inside or outside the exchange—otherwise, it could really upset the market,” she says.

3. Will it include an individual coverage mandate?

An individual coverage mandate has been the cornerstone of Massachusetts health reform, and state officials say they wouldn’t enjoy such low uninsured numbers without the mandate.

But others say federal lawmakers should not require all Americans to have health insurance. They instead would rather a health insurance exchange that is similar to eHealthInsurance, which is a Web site that allows consumers to compare health plans. Joseph Antos, Wilson H. Taylor Scholar in Health Care and Retirement Policy at American Enterprise Institute for Public Policy Research, says lawmakers don’t need to mandate insurance to accomplish that kind of system.

“There are enough people who understand that they ought to have coverage and are interested in having some choices, and this is a viable business model,” says Antos, who recently wrote The Case for Real Health Care Reform.

Creating a program heavy with regulations and mandates would price young people out of the insurance market, Antos says, adding that young people want basic health insurance and not a plan that is designed for a middle-aged family man. Those types of plans are too expensive for recent college graduates, he says.

“If you set the bar very high—and that might be the direction that some Democrats want to go and certainly the direction Massachusetts went—then you will basically eliminate the economic incentive for insurers to try to come up with a better combination that reflects reasonable coverage at a reasonable price,” says Antos.

Rather than federal lawmakers creating mandates for insurers to follow, Antos says private insurers should be allowed to design benefit programs that interest their various members.

“What you really want to do is enlist the smart people in insurance companies who design insurance plans and give them an economic reason to design a plan that would actually be attractive to a wide range of Americans, which implies balancing the benefits with a cost,” he says.

4. Is the exchange a way to compare plans or something more?

An insurance exchange could be merely a Web site that allows people to compare prices and benefit packages or it could take a more regulatory role (such as Massachusetts) and negotiate with plans. An exchange could also mandate types of coverage and plans that it allows in the program.

The argument for setting a floor for benefits and coverage is that prospective members could compare apples to apples. However, those who oppose the idea say that coverage mandates will add costs and price out people, particularly younger people who are needed to fund health insurance.

One benefit of the exchange idea is that a Web site could go beyond providing price and benefit information and could help people learn more about health and how to become better healthcare consumers.

5. Who will have access?

Federal lawmakers can open the exchange to the individual market, small employers, or everyone.

Opening the exchange to only the uninsured to join individual plans would not help small employers who are struggling with health costs, but other experts are worried that opening the exchange to too many people initially will cause a stampede out of employer-based insurance and could flood the exchange in its infancy.

Trautwein says she would like an exchange to start with the individual market to work out the bugs before expanding to employers with as many as 50 workers.

The exchange must also provide low-cost plans to woo younger people into the plans, she says. “You have to really be careful about how you set up your rating model so it’s still affordable for young people to come in. Those are the groups you really want in. They are a big part of the group that’s not in today,” she says.

Regardless of the specifics of the insurance exchange, supporters in both parties believe it could become a part of a bipartisan reform package that gives Americans a place to become better health insurance consumers.

“Virtually all economists agree that if you provide more information to consumers and more choices, that they’re likely to pick something that is closer to the combination of benefits and cost that appeal to them personally,” Antos says.